1.Chuck tell me, what did you do before you joined Diamond? I was a CPA in public accounting. My association with Diamond began when I was working for a local CPA firm and Steve [Geppi] came to the firm asking for some assistance. I was assigned to the account and was the 'outside' accountant for about two years. During this time, I was asked to hire a controller for Steve's companies. I began doing interviews for a controller and as I was explaining the job to potential candidates, I began to convince myself that this might not be a bad job for me. I actually selected someone for Steve to interview, but after the interview ended, Steve offered me the job and I accepted it. A decision I have never regretted!
Did you go into public accounting right after college? Yes I did. I studied accounting in college and the day after I graduated I started working in a public accounting firm.
And when was that? 1980.
2.How long have you been with Diamond? Since April 1, 1985.
3.Describe your career path since you joined Diamond. Have you always done the same thing? Has your job changed? When I joined Diamond I was hired as the controller. It was a much smaller company so I did a lot of things that now require a lot more people to do. I would prepare the financial statements, I wasn't doing the auditing of bills but I was signing the checks and doing anything you could imagine that had a financial flavor, either overseeing or directly handling it. We were a growing company, and Steve was acquisition-minded, and this created opportunities. I saw the need to branch out beyond the financial end of responsibilities and into some more operational issues. In time, Steve gained more confidence in me and in my opinions so I began to take on more responsibilities. After about two years I ended up hiring Larry Swanson who worked for the same accounting firm I had (we had stayed in contact). He came onboard as the controller and I moved to the chief financial officer role. As we continued to grow, Larry hired Helen Carroll, who he had worked with in public accounting. She came on as the new controller, he (Larry) moved to the chief financial officer position, and I moved up to my current title which is chief operating officer, executive vice president. Helen, later hired a controller, as her responsibilities increased, so the Company has grown quite a bit over the past fifteen plus years!
4.When did you become the Chief Operating Officer? I don't recall. I would guess the late eighties, but it was a gradual thing. It was a gradual thing based on need, growing out of what I started to do. When you're in the financial area you get involved in a lot of things, so it was a natural progression. It just kind of happened day-by-day and then at one point you stop and look around and you're handling a lot of things you weren't first handing.
And your current responsibilities? The way to sum that up would be the day-to-day running of the company. As we were talking about earlier, I'm very fortunate to have some very bright, very hard working folks working with me. The company is split up into four segments - operations, sales & marketing, purchasing and the financial end of the company - and these segments are all headed by sharp individuals who report to me. The five of us work as a team, and of course, report to Steve (Geppi). We all have a sense of what we can or can't do without Steve's blessings, but as far as the day-to-day activities of the Company and the mapping out of strategies, it's a five-headed attack.
5.As the man in charge of running Diamond day-to-day, you're responsible for its over-all condition. What is the state of Diamond as we approach the end of the year? We had a very solid year. The company is financially healthy. We've come off some very nice years and this year has been a very solid year. There are some issues in the market place, non-industry issues, that are eating away at our bottom line, as I'm sure they're eating away at all businesses. One expense is the high cost of oil, which we hope eases in 2001, but for the year just ended, fuel had a material impact on our bottom line. The cost of labor is up as well. The cost of help, retaining and hiring, is more expensive and that has had an impact on our bottom line. The cost of insurance, whether it's business insurance or health insurance, all continue to escalate. So you have those kinds of things. We've been able to stay ahead of the game over the years because of our IT department helping us become more efficient and by streamlining where and whenever we can.
6.What are your current observations about the state of Diamond's customers? I think the customer base, as far as I can tell, is doing pretty well. I base that determination on information that is circulated from our outside sales reps, as well as, our customer service department. Our customer service and sales department folks document their calls and store visits, and circulate this information. From these various reports the reader gets a flavor of the mood of the retailers. You also get a sense of what is selling, or what's not. For the financial condition of retailers, I look at our receivables - Are people paying their bills? Are they timely with their payments? Are we having to extend credit more than what may be the normal course? Armed with this information, I think things are solid at the moment. Now that's not to say that I don't worry about our retailers because I do. Retailing is a tough business. But I do think overall, retailers are doing pretty well right now.
7.What are your current observations on the supplier side of things? A lot of vendors seem to be coming into comics so that is a healthy sign. Overall, I think our vendors are doing okay. I think there are some vendors who probably are watching the bottom line very closely, because their product is not selling in the quantity that it used to or what they want it to. I'm not hearing anything through the grapevine that's concerning, other than what one occasionally hears about Marvel's financial condition. However, my vision into Marvel's affairs is very limited, and I feel strongly their publishing division is making money. My sense of things for most suppliers is that they're doing fairly well, but I'm sure there are some challenges, particularly with our comic vendors.
8.Given the current status of the industry, what sales trends do you expect over the coming year? I don't have a crystal ball obviously, and I can only look at the future by way of looking at the past. So by looking from a trend analysis point of view, things are fairly stable and have been stable for the last couple of years. The changes have only been marginal. Comic sales are down slightly this year while graphic novel sales are up. Toys are up strongly this year, as are our license import Japanese toys. When we compare product categories as a percentage of sales to last year, most categories are only slightly up or down. Video sales were up for us, while card, magazine and game sales were down. But again, from our view, no category of sales is dramatically changing from a trend standpoint, so given that, and I think sales will continue to stay the same, outside of something extraordinary happening. An extraordinary thing might be something very positive or negative.
9.What macro trends in society and the economy do you see affecting Diamond and its customers and suppliers over the next 1-2 years? I don't really see anything dramatically affecting Diamond, unless something extraordinary occurs like one of our big suppliers having financial difficulties or some product we carry becoming the next national craze. I think the challenges that have been affecting our industry over the last five or 10 years will probably continue: Are people going to read? Are they going to read comic books? Are their interests going to be in video games or other electronic media? As you know, that's been the challenge for the entertainment dollar for years and that's going to continue.
Obviously there could be other economic factors, whether it's the price of oil or the cost of paper, or whatever. And those types of things impact our industry. There used to be the old saying that during a recession, comics use to fare very well because of low price points. Today if there's a recession, it will be interesting to find out if that saying will still hold. We'll have to wait and see. The entertainment value isn't as inexpensive as it once was, but it's still inexpensive.
10.Over the last several years, Diamond has reduced its number of locations substantially. What has been the reaction of your customers and suppliers to this change? I think as an overall statement (as far as I am aware) for the suppliers, it's not been a big issue. For the retailers, obviously, if you take something away, particularly something they enjoyed, they're not happy about it. We have tried to compensate by adding 13 drop points to help replace the warehouses we have closed. We still have five warehouses here in the States. However, I think that if we did have more warehouses, more shops may open up, or existing shops may add a comic line to their store, simply due to the increased exposure of the product. Unfortunately, profit margins no longer really allow for this type of setup. I believe six years ago, Capital City was on its way to more of a singular warehouse type of approach, as the need to streamline the number of warehouses was necessary given the issues that occurred in our industry years ago which resulted in the tightening of distributor margins. And quite frankly, our service has improved in recent years even with (or maybe because of) fewer warehouses. This may be because with consolidation, the best of our managers remained to oversee distribution centers, and in some cases, former managers helped support the distribution center infrastructure becoming key supervisors in our now larger warehouses. The improvement in our service is documented through our annual customer satisfaction surveys, which have for years, shown a very positive trend.
11.To what degree is your time devoted to Diamond as opposed to Steve's other enterprises? Well it depends on the business. As a general statement, I sometimes act as a conduit of communication, as Steve might be unavailable. So I'll interact with whomever may be running a 'sister' company as a communication point between Steve and that individual. Sometimes, because I've worked with Steve for so long and because we often think very like-minded, I can be a very good sounding board, in his absence, for whoever is running the 'sister' company. But I am not hands on with any of his other businesses, so my involvement can change week to week. However, Alliance Game Distributors is another story. I've been pretty involved with Alliance as we are going through a number of transition issues. Alliance, of course, is a distribution business similar to ours. Although we haven't begun a lot of integration, strategically I'm involved with the two Alliance principles, Dan Hirsch and Charlie Tyson, and we usually talk daily. If you look at other businesses that Steve is involved in, such as Baltimore Magazine, the person running that business is Dick Basoco. I only 'shop talk' with him periodically. If you are referring to Steve's other businesses, such as Gemstone or the Diamond Gallery, I'm not involved at all.
12.Diamond has done a lot of acquisitions over the years. How have you been able to integrate such a disparate group of companies into a cohesive, disciplined organization? We have good management, and good systems. We're honest when we negotiate with a business owner about what our intentions are and what we plan to do, and we ask for their feedback on how to handle certain things. Sometimes the principals of the businesses we have acquired have joined Diamond, and sometimes they haven't.
We realize it is bad business to come into a new business and run roughshod. We try to be sensitive to the employees and their concerns, and the changes that they're going through. But, you also have to put your own systems in place as well. We have been fortunate, to have 'acquired' some extremely talented people in these acquisitions. For example, both Roger Fletcher and Cindy Fournier, our Vice Presidents of Sales and Operations, respectively, worked for Bud Plant, Inc, which we acquired in 1988. And, although we did not acquire Pacific Comics, Bill Schanes, our Vice President of Purchasing, who ran Pacific, joined Diamond months after I did, bringing with him many years of industry knowledge and experience. In summary, we believe the greatest asset in any business we acquire, is the good employees they have working for them.
Employees, more often than not, see opportunities with Diamond and buy into the Diamond system of doing things. I remember one distributor had a 'kill Diamond' message scribbled on the warehouse wall. It was their 'war cry', if you will, because they viewed themselves in direct competition with us. Oddly enough, we really didn't view ourselves as competing with them because of where they were strategically located. However, we sent management to work with them, and most of the employees quickly realized that we aren't bad guys and gals, and in a relatively short period of time, the employees found out we were, and are, pretty reasonable and sensitive people. We had some ideas about how to run some things more efficiently, and they bought into it.
The other important thing we normally do is to quickly take control of what we call the back room operations, the administrative piece of those businesses -- the payables, the receivables, etc. We quickly control that area of the business and we let our operation folks, focus on implementing the Diamond way of operating. However, the biggest challenge, and the most important element of making an acquisition successful, is to eliminate the 'we' versus 'they' feeling that often occurs in an acquisition. It is extremely important to get all employees feeling like they are on a winning team, and get everyone headed in the same direction.
13.Why did Diamond acquire Alliance instead of pursuing the games business on its own? Our upper management team met in January, as we do every year, to assess the year just completed and to set goals for the upcoming year. One of the goals for the upcoming year was how to grow the business, so we looked at our various product categories and one of the areas that we looked at closely was games. We've been selling games for many years, but we knew operationally we weren't set up to properly compete in the gaming hobby market. Even though games sales are similar to comics, there are some major differences in the way business is conducted. For Diamond to try to reinvent itself (and we could have done it) would have been a very difficult thing, especially for just one product line. It would have been a really difficult challenge. The easier challenge, and in keeping with Steve Geppi's growth philosophy, was to acquire. Alliance is located only 15 minutes down the street from our corporate offices, so we picked up the phone and called them. We began a phone dialogue, which was pleasant right from the start, and those phone conversations led to lunch discussions and that led to negotiations, which were always positive. We think that we ended up marrying two very strong companies. They are a company that knows how to compete successfully in the game industry because they have some really sharp individuals working there. I have a lot of respect for the employees at Alliance. It just made more sense to have them as part of our team, as opposed to trying to compete with them. They know the game business and they know the game retailers and vendors. In addition to all of that, they conduct business in a way that is the standard in the game industry. Even though we sell a lot of games through our Previews catalog, we don't fare as well selling games outside of the catalog.
14.Do you see any integration with Alliance coming in the future? Yes and the first integration is going to be the computer systems that will allow us to look into each other's inventory. Utilizing the same computer system will help on the data knowledge and inventory fronts. So getting them up to speed from an IT standpoint is important. As far as the operational integration, I wouldn't close the door on that thought, because you never know what the future is going to hold, but basically it's a separate company that runs under a different set of operational rules. Down the road, there are certain things we plan to look at, such as shared warehouse space, etc.
So are you saying they are converting to Diamond's computer system? It's a system very similar.
What's the purpose of being able to look into each other's inventory? For cross-selling. One of the opportunities that Alliance provides to Diamond, as well as Diamond to Alliance, is the sharing of account information. This gives us an opportunity to sell to game shops that have never carried the products that we offer. And vice versa, you have comic stores that really don't understand games or only understand them from a surface viewpoint. Our comic and pop culture stores, will be provided with the needed level of expertise to help them sell games. There's obviously a group of accounts that have bought from both companies since day one, but for the accounts that didn't, we are hoping to expand the market.
So you're selling out of each other's inventories? Or will you be? Maybe not what you would think of--Alliance selling a comic book out of Diamond's warehouse and shipping the book from Alliance to the store. But the opportunity for that kind of selling is what we expect to happen. The shipping aspect may be different from the selling piece.
15.To what degree do you see market growth as something that Diamond should be working on versus something the publishers/manufacturers must do? We all have to do our share. I think Diamond does its share but Diamond works on a very tight profit margin so there are limits to what we can do. Diamond sets up at about 15 trade shows per year. Many of these shows are outside of our industry in our effort to increase awareness of comic books. We go outside of the comic market all of the time through the use of telemarketers who are calling non-traditional comic shops. We try to expose product lines to retailers who might be interested in a certain niche of what we offer but who may not be interested in our full line of products. Sometimes sales are difficult because of the non-returnable factor of our offerings, and because retailers may not be willing to spend money on something that they are not that familiar with. But we do make the effort to reach out beyond the 'norm'. With that said, I do think it's the manufacturers responsibility every bit as much as ours, if not more, to promote their products and get the word out -- to work with us, work independent of us, but try to get exposure for the product.
16.How has the tight labor market affected Diamond? It has affected us because it's harder to attract and keep good people. IT people are difficult to get (the good ones obviously). For general ledger, accounting, and areas like that we've had some difficulties as well. We've had some difficulties hiring at the warehouse level. We've had to increase the pay levels in many areas of the Company. The impact of the tight labor market, simply put, is we get less work done for the payroll dollar. That has an impact on our bottom line. However, I'm sure most businesses are facing the same challenges.
17. Any particular areas that are harder to staff? The IT area is tough. I think some of what the market place often calls 'professional' positions are more of a challenge to staff then a general position.
18.There has been some discussion recently of Marvel's financial health. How would Diamond be different if Marvel were no longer publishing comics? 'I don't know,' would be my first reaction. Obviously Marvel is a large vendor to us, and a large vendor to our retailers. So if they weren't publishing comics we would have to reshape ourselves, and I don't know what shape we would take on. We would figure it out, however. We would reinvent ourselves, as we have done a handful of times over the years. The reality is, retailers need Marvel comics to help pay the rent. So if Marvel stops publishing comics (which I don't think they will, but if they do), a domino effect would occur that could be very hurtful to this whole industry. Some retailers would go out of business. Then the question becomes are there enough stores, enough critical mass of retailers, to support the other publishers? I think Marvel is a key player in our industry and if they were to stop publishing comics it would be very harmful for everybody in the industry. We would all, Diamond as well as the retailers, need to reinvent ourselves, which we would, but we would all go though some tough months before that mission was accomplished.
19.There were a couple of dust-ups over the last few years regarding Diamond's relationship with e-commerce retailers such as AnotherUniverse.com (now Fandom) and Next Planet Over (now eHobbies). What do you see as the impact of e-commerce on retailing in the categories Diamond serves? I think e-retailing is a positive thing. I actually think it's a particularly positive thing when it is done in concert with a brick and mortar store. E-retailing in any form helps expand the marketplace. It helps expose products to people who wouldn't normally be exposed to them or might not be inclined to drive to a store even if they knew that store carried an item they might be interested in. I think e-retailing is here to stay. It's a channel of sales that complements both catalogues and brick and mortar stores, because businesses that are already set up to service a particular trade can simply expand their marketing reach with very low overhead costs.
Also, look how eBay has had such a positive impact on our industry. It is helping people sell back issues or items they have over stock on. EBay has an exposure that's immense so the retailer as a wonderful 'upside' to connect with a new consumer. EBay also relates to the earlier question regarding the financial health of the industry, and I think e-retailing contributes in a positive way.
20.Why doesn't Diamond take wholesale orders over the web (using a cart)? We're working on that. I don't know whether we'll actually have a cart but we'll have something similar. We expect to have that feature done by, I hate putting timetables on our IT department, but I would say by mid-2001(link here to Diamond website).
This isn't just upload/download, but actually ordering by product? Yes and our folks are working on that enhancement as we speak. It's complicated, but once you have the system in place we will have a lot of flexibility to do a lot of things.
Why then, instead of now, or some point in the past? We were not in a position to make it happen. We welcome it and it should be a boon for us on a lot of levels. It will cut down on human error and make things more efficient, but we did not have the ability to do it. We had to prioritize things. We have a very good IT group, but they can only do so much at one time. We've had to deal with Y2K, we've had some business acquisitions, we had to make some changes with the Diamond UK computer system and all of this takes time. There have been a lot of enhancements and service innovations that we've completed on our system over the past year, but this enhancement is a huge project. This feature will be very helpful to our retailers, and very welcomed by us. We can't wait!
Thank you very much. Anything you want to say to our visitors? I hope that 2001 is a very prosperous year for everybody. I hope everyone has a positive outlook on the New Year, and again, based on the feedback I get, generally I think the vast majority of our retailers and vendors do have a positive outlook. It's a fun and exciting industry, and we all shouldn't forget that!
